Benefits to a company are defined by the concerns of all stakeholders. Sustainability performance is generally viewed from 3 angles making up the triple bottom line. Overall sustainability has to include social environmental and economic performance. A successful sustainability strategy ideally should improve social and environmental performance while realising potential economic gain. With these three factors to take into account the successful implementation of measures is difficult. However a new dimension of potential benefits has emerged to fill the niche. Many potential benefits will have already been realised or partially realised within the company irrespective of sustainability as a driver.
Potential benefits for a company according to Epstein (2008) include direct financial, customer related, operational and organisational.
Direct financial benefits include lower overheads an increased production and therefore revenues, less costly administrative costs with the inevitable stock market benefits for all these factors. These factors will only be applicable if there is there is a direct relationship found between an economic and sustainability changes. For example, improved logistics would result in less fuel consumption. The problem remains with finding the significant link in a specific company and establishing a payback for any investment. These direct financial benefits may have previously been realized but strictly from a financial perspective and therefore could be optimised. There is however the perspective that justifies investment into improving sustainability performance: There is a high likelihood that commodity prices will increase as well as the government regulations becoming more stringent and costly not to adhere to. Therefore direct financial benefits would be in the future and the investments would be a future proofing method.
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Customer benefits relate to increased sales due to the customer behaviour and the way the customer and stock market views the company. An increased sustainability performance is becoming an increasingly more significant driver in the market place however it is not entirely clear as to whether a large proportion of consumers actually purchase goods based on environmental performance; this influencing factor is likely to increase in the future with increased consumer awareness and labelling. Poor social performance can be very damaging to companies and there are many examples of consumers boycotting products. However poor environmental performance has not necessarily received the same condemnation as yet. Many customer benefits could be through supplying other companies rather than the final consumer. In this case there could be benefits in conforming to the expectations of customer companies that monitor their supply chain and report on supply chain performance as well as their direct performance. This could of result in increased business with certain customers or a valuable marketing point.
It should be noted that companies may be able to reap the customer related benefits without considerably improving performance this is due to the value of sustainability actions being not fully established and it is often easier to appear like a good performer via the implementation of an EMS for example than to actually perform. The implementation of an EMS does not guarantee improved performance it only declares an awareness of performance. Unfortunately this has the potential to devalue companies that should be accredited because they are good performers.
Operational benefits are orientated around increased productivity and reduced emissions; these benefits are dependent on the reorganisation and innovation within the production and are in line with cleaner production concepts. Ability off a company to optimise its products and processes is highly dependent on the type of industry however it can result in two fold benefits: reduced expenses due to a smaller waste stream as well as reduced costs in production.
Organizational benefits are the benefits experienced within the company itself through increased employee satisfaction, increased stakeholder satisfaction, increased learning, and reduced regulatory stakeholder intervention.
An increased employee satisfaction could be attributed to several factors: an increased trust in the company, more engagement with employees over sustainability issues, less concern over environmental and social degradation that they are party to by being associated with the company, increased learning and acquisition of skills, and a safer work environment all contribute to the overall satisfaction. Benefits to the company would be through increased employee retention and overall employee performance. Stakeholder satisfaction is paramount to the company and if sustainability measures can increase the trust in the company as well as increasing revenues via the aforementioned benefits the overall health of the organisation will increase.
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The factors discussed above will have possible benefits to varying degrees dependant on the company in question as well as their success in implementing a sustainability program. The logistics of becoming optimal in economic environmental and social aspects is challenging and may not be initially successful.
Q2. A company's knowledge assets (known as "organizational learning") can be a sustainable competitive advantage. In what way are these capabilities embodied in the company and how can they be identified and communicated?
Knowledge assets are one of the major factors in the ability of a company to adapt to a changing environment. To obtain a competitive advantage the knowledge base has to be greater than that of the competitor and more successfully called upon. This will allow changes in the market place, new technologies and stakeholder demands to be utilised.
According to Epstein, (2008) Organisational learning takes on four dimensions these areas are where the knowledge assets are embodied from these areas it is possible to identify the knowledge or lack of it and communicate it accordingly.
Skills and knowledge relates to the expertise of employees, both the assets they came to the company with as well as company specific expertise acquired during their employment.
Skills and knowledge of company systems will be present throughout the organisation in different degrees.
Physical Technical Systems knowledge relates to the systems in place as well as the hardware and how it is organised, internal systems including software and hardware in place. In general it is all the physical attributes that aid the smooth operation of the company.
Managerial systems are made up of a series of targets and documentation these systems are a form of knowledge base that performance targets are met and company policy and norms are implemented. The managerial systems are the systems that can be used to implement new targets across the organisation so this area of knowledge will reflect all the details that company believes to be important in day to day running of operations.
Norms and values are another asset to a knowledge base they represent a starting point to be built on so with the aim of new norms being established following improvements. These norms act as a control system in which performance below that level is unacceptable.
The common issue within companies is not necessarily a lack of knowledge base but the ability to identify the beneficial knowledge and communicate it and organise it in a way that gives rise to new strategies or makes the company more receptive to new strategies. The knowledge base does not necessarily come from the top down it stands to reason that employees directly involved in the processes are more aware of sustainability potentials in their area of expertise. Therefore knowledge at all levels of the organisation needs to be systematically identified and communicated if it is to be utilised successfully. To utilise the knowledge asset base there needs to initially be a shared vision of what the company wants to achieve. This vision should incorporate identification of problems and a systematic methodology for solving those problems. Effective communication will involve the collaboration of ideas and knowledge from previous experiences as well potential best practices from other organisations experiences. Following implementation there needs be a feedback procedure and a method of evaluation. One of the standard systems suggested by Epstein (2008) is the Plan Do Check Act (PDCA) cycle. This system is a practical methodology for continual improvement of performance which entails: Research and proposal/plan; instigation and training including updating knowledge bases; auditing and monitoring of transition period and eventual affects on the operation; report to management and redesign a new plan for improvement. Another method would be the utilisation of ISO 14000 for communication and learning. This involves a continual interplay and improvement of the core capabilities and review feedback processes.
Q3. Stakeholder value and reactions are critical in managing sustainability in a company. Define typical stakeholders and explain why they are important?
The stakeholders of the company define the context in which the company operates; the specific set of stakeholders and their outlook in affect define the company. The company as an entity has to adapt to and be aware of changes in stakeholder perspective so they can be predicted and accommodated or taken advantage of accordingly. Certain stakeholders perspectives may be over looked or contravene interest of other stakeholder groups. The company has to continually balance the perspectives of different stakeholders for example; large investments into sustainability infrastructure may not be fully accepted by shareholders that are looking for economic returns in the shorter term.
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With an ever increasing demand for transparency in companies especially in corporate relations it is imperative that a company can justify its actions to stakeholders and interact with them accordingly. This transparency has given stakeholders more power to influence a company as the operations of the company cannot be concealed. The company must try and appeal to as many stakeholders as possible.
Stakeholders in a company can be divided into primary and secondary groups. In general a stakeholder is an individual or a group that has an interest in the company or the outcome of the company's activities. Typical stakeholders of a company are dependent on the scale of the organisation as well as the activities of the organisation. There are many potential stakeholders however I will give the main examples.
Primary stakeholders can affect company decisions directly, they might include:
Board of Directors CEO who are normally the decision makers
Regulatory Government organisations
Secondary stakeholders might include
Stakeholders are important because of their interaction with the company, the diversity of opinions drive the company in a specific direction, and the company reacts to those interests accordingly. Therefore stakeholders will either enable or constrain the management of sustainability. Stakeholders need to be identified and engaged according to their interest in the company as well as their ability to affect decisions within the company. An open dialogue with stakeholders is becoming more expected as companies have developed their sustainability performance. It is important for stakeholders to be supportive of increasing sustainability performance if it is to be successful therefore an interplay of concerns with the company and the stakeholders is beneficial in achieving satisfaction for all parties.
Q4. Which tools can be used in identifying the costs of the sustainability impacts of a company's activities, processes, products and services?
A company can take several strategies in the evaluation of costs for sustainability impacts.
Specific tools can be used in these strategies.
Many companies take a responsive role in capital investment, finding the cheapest way to comply with regulations, this could increase the costs and is blind sighted as it is not an informed strategy in which market, technology and future changes are taken into account. A proactive approach would be to evaluate the costs of sustainability impacts with the aim of reducing them using different evaluation techniques followed by taking the best course of action to reduce sustainability costs.
The first step to establishing the social and environmental costs should be the separation of those costs from other operational costs so a true estimate can be established activity based costing is an effective method to disassemble costs. It is then possible to make these costs more of a focus of managerial and organisational targets.
Tools for the evaluation of sustainability costs:
The Life Cycle Costing (LCC) can be a component of the Life Cycle Analysis (LCA) and it is a tool to identify the costs associated with a product, service, process or activity throughout its life cycle. The difficulty with this tool is all costs must be in monetary terms to be able to evaluate them. The difficulty arises in assessing environmental and social costs. However it can be used to evaluate future and present costs as well as there being the potential for comparison of different scenarios.
Full Cost Accounting (FCA) is a method by which a company can integrate the data from an LCC in any given time scale into accounting terms the system allows the integration of costs including societal and environmental. These costs are integrated into the final costing of what the company is offering. It is essential to operations to put sustainability costs into company terms so norms can be established based on those terms and decision makers can make an informed decision about the costs.
The Cost Benefit Analysis (CBA) is similar in many ways to the LCC although there is the element of benefit accounting, this can make it more useful in the decision making process. It is often used for comparisons of different scenarios in monetary terms to fin d the most cost effective outcome. Generally this tool is used for future potentials and is change orientated; however having the additional dimension of benefits could become a driver for making investments through realisation of potential benefits in the future.
Many tools are available for costing of different sustainability costs the choice of the appropriate tool is dependent on what the company is trying to achieve. If the company is trying to establish the environmental costs of a change then the tool used would depend on the scale of the change the stakeholders involved etc. If the company was trying to assess their current activities a tool such as the LCA may be applicable but would have to be used in conjunction with a financially orientated tool such as the LCC. There is the potential for sustainability costs to be complex especially if the company wishes to account for both internal and external costs in which case there may be the need for the use of a tool such as the Material Flow Analysis (MFA) to establish quantities for environmental factors prior to putting those factors in monetary terms. There are however restrictions in using a variety of tools in that the processes for conducting analysis are time consuming as well as potentially costly. This additional expense may undermine the ability of a company to make a full sustainability cost evaluation.